9 compensation myths cracked

For some job seekers, compensation is now taking a back seat to organizational longevity and credibility. Illustration: Raajan/Mint.

Updated: Mon, Nov 05 2012. 03 55 PM IST

Talk about compensation and most people will sit up. It impacts the CEO who worries about the organization’s resilience in tough times, the CFO who obsesses about explaining decreased margins to investors, the HR head who collects accolades from his prime constituency on the quantum of compensation increase she delivers, and of course the employee who is committed irrevocably to his compensation.

Wise sayings abound—from the sublime by former GE chairman and author Jack Welch, “If you pick the right people and give them the opportunity to spread their wings and put compensation as a carrier behind it, you almost don’t have to manage them”, to the earthy, “If you give peanuts, you get monkeys.” And while traditional compensation trends have reams of newsprint spent on them, dwell a while on some important compensation-related myths.

MYTH 1

Salaries always go up

It was a chance conversation about his compensation and the person was actually quite apologetic. “Actually Hema, it is quite bizarre. My annual compensation was Rs.79 lakh in 2010, Rs.50 lakh last year and has dropped to Rs.44 lakh this year.”

And you thought salaries only went up. “Hmm, must be a poor performer,” you could say…

Not really. The said employee had even merited a promotion in the last few years. What then is the trigger for this increasingly common phenomenon? The kicker, of course, is in the variable pay. Deciding to future-proof itself, the company had introduced a substantial component of variable pay into the compensation plan—payouts for which would be based on revenue growth, margins, and the like. And so, even though the fixed salary annually limped upwards, in tough times the variable components shrank. Result: a declining salary graph.

MYTH 2

Increments come around year after year…

Think again. Gone are the days when come April or June or even October, you could inevitably expect a compensation increase. Nowadays the trend is to keep them guessing. Will be, won’t be and even if…when will it be? Compensation revision calendars are skipped without so much as a by your leave and normal 12-monthly cycles are morphed into longer ones without missing a corporate heartbeat.

MYTH 3

Job-hopping? Only if it comes with a compensation jump

Jumping jobs always meant a pay-packet jump. No increase, no interest, was the job-hopper’s mantra. Welcome to the new world where the recently enlightened job searcher is more worried about organizational longevity, credibility and learning opportunities, including wider roles. So increasingly many are seeking to jump off shaky ships to sturdier corporate landscapes even if it means less moolah in the bank.

“I don’t mind, Madam, if the salary cannot be matched. It is a company with good credentials that I want,” said one hopeful to me, much like a parent in search of a prospective groom. “I know most organizations won’t be able to match my salary. But actually this figure is indeed not quite sustainable.” And this from a veteran who had always professed, “No increase, no interest.”

MYTH 4

Compensation surveys—the lodestars of compensation increases

Time was when no HR head worth his salt would move left or right without a compensation survey to guide him. Justifications to CEOs and to global bosses were rampant with references to this survey or that. “I don’t follow them any more,” said one CEO to me. “What is the point? They come out with an increase estimate one day and half the industry announces zero salary increase on the next. I have now decided we will take our own decisions in future and cut our payroll suit to match our outlay.” Compensation surveys may not completely disappear from the face of the HR scene, but utter devotion to them and their total domination is clearly on the wane.

MYTH 5

The head of HR architects compensation

Wake up and smell the coffee, folks. While compensation falls fairly and squarely in the HR domain, the decision on how much to give, when to give and even how to structure (remember our fixed vs variable future-proofing magic bullet in Myth 1), are all mostly driven by the CFO. The CEO, the remuneration committees and even the full board, look for the sagacious nod from said CFO before dutifully signing on the dotted line of the HR proposal. So don’t harass the hapless HR head for your compensation, or lack of it. The puppet strings are clearly being pulled elsewhere.

MYTH 6

Increment letters come neatly typed on parchment paper and are handed over in this intense one-on-one discussion with your appraising manager

Digital communication is the norm and emails are now sent in a blink. They come into your inbox with an unprepossessing subject line which reads “Re:INC20125063” or some such equally incomprehensible alphanumeric. Many things could happen. You may trash it as dangerous and never find out how your compensation has increased or decreased till the payroll rolls by. Your computer could think smart and with all its filters consign the said mail to some quarantined space. Or you could curiously but innocently open the mail and receive the biggest shock of recent times. All of us in HR have at one time or another responded to an agitated employee’s query as to why he alone received no compensation increase, only to have him find said communication in Spam or Trash.

MYTH 7

Employees have the greatest clarity on their compensation

At any employee town hall, ask for a show of hands on how many have any confusion about their compensation and count the number of hands that go up. Take my word for it, there will be a healthy percentage, if they are honest and you think your compensation structure is “sophisticated”. The number of times employees sit in blissful or often resigned ignorance of their compensation package bears counting. The more detailed and elaborate the structure, the greater the ignorance. Questions abound—“Why am I not getting my full variable component?”, “Why did some of that reimbursement get docked?” and “What do these terms in my incentive plan actually mean?”

MYTH 8

….And the logic of deductions

Surprised with a sudden deduction or running around to understand the logic? Don’t worry. That’s par for the course too. “Suddenly some regular deductions in my payslip stopped and the take-home increased. Lest I get a whopper of a deduction year-end, I checked with my HR, who forwarded it of course to finance. Their reply, full of jargon, went completely over my head. And so I asked my HR to interpret; they again had no clue. So I have no clue,” said one harried employee.

MYTH 9

All other compensation terms and conditions remained unchanged

And the final clinker! Traditionally, all compensation communication comes with the ubiquitous clause, “All other terms and conditions remain unchanged.” But employees beware; these days there are so many nuanced changes in compensation and benefit plans. A hitherto taken for granted transport or canteen subsidy, or even a business travel eligibility, could disappear like dew on a sunny morning and hit an unsuspecting you any time of the year. So read the fine print and smarten up on the “All”, which seems to sit these days in a much too empty hall.

Hema Ravichandar is a strategic human resources consultant. She serves as an independent director and an advisory board member for several organizations. She was formerly the global head of HR for Infosys Ltd.